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COA rules on coal bed gas dispute

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In settling a dispute between two Illinois companies regarding who has the legal right to recover coal bed methane gas, the Indiana Court of Appeals made its decision based on public safety and ruled in favor of the company assigned the coal bed gas lease.

The issue in Cimmaron Oil Corp. v. Howard Energy Corp., No. 26A01-0902-CV-67, is whether a 1976 lease that Cimmaron's predecessor obtained for the right to drill for and produce oil and gas includes the exclusive right to drill for and produce coal bed methane gas (CBM).

The Hardimans own the real property in Gibson County at question in the suit. In addition to the 1976 lease Cimmaron has, the Hardimans granted a coal bed gas lease to Howard Energy in 2001. In 2003, Howard Energy filed a complaint for declaratory judgment against Cimmaron and the Hardimans. Howard Energy argues the Cimmaron lease covers only the oil and gas estate and includes only the conventional natural gas emanating from the coal, while its lease holds the right to extract the coal bed methane.

The trial court issued declaratory judgment in favor of Howard Energy, adopting the "eastern rule" that CBM is part of the coal estate, and no interest in CBM passed by reason of the 1976 oil and gas lease. The trial judge also discussed public safety and how giving away control of the CBM from the coal mine operator wouldn't serve public interest.

Because the concept of producing CBM for commercial gain wasn't possible in 1976, it's up to the courts to determine whether that lease somehow permits it.

The Court of Appeals used rulings from other jurisdictions on the presumed or surmised intent in the grant of oil and gas leases pre-dating current technology. Some courts have considered CBM as part of the coal bed estate, as part of the oil and gas estate, or a distinct mineral estate.

The trial court in the instant case followed the "eastern rule" that CBM is a component of coal and CBM production and coal mining are best left in the control of a single entity, wrote Judge L. Mark Bailey. Cimmaron would rather the court adopt the "western rule," which says the holder of a broadly defined gas and oil estate may have rights to CBM, which is a form of gas.

The gas estate owner wasn't granted permission in the lease to invade the coal seam, which would be necessary to produce the CBM. In fact, the CBM would be from virgin coal seams and would require fracturing the seam with high pressure.

"The Hardimans did not explicitly agree to Cimarron's invasion of the coal bed in this manner; it is not reasonable to presume that the intent was to permit invasion of a valuable land asset, the coal bed, should a means of making profits arise in the future," wrote the judge.

The appellate court declined to adopt either rule, but agreed with the trial court that public policy would militate toward considering CBM to be part of the coal bed.

"Public safety would be disserved by pitting the miner who needs to dissipate CBM to prevent explosions against the gas estate owner whose financial resource is being depleted," wrote Judge Bailey. "Nevertheless, it is within the province of the Legislature, to which we defer, to make policy decisions."

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  1. Hail to our Constitutional Law Expert in the Executive Office! “What you’re not paying attention to is the fact that I just took an action to change the law,” Obama said.

  2. What is this, the Ind Supreme Court thinking that there is a separation of powers and limited enumerated powers as delegated by a dusty old document? Such eighteen century thinking, so rare and unwanted by the elites in this modern age. Dictate to us, dictate over us, the massess are chanting! George Soros agrees. Time to change with times Ind Supreme Court, says all President Snows. Rule by executive decree is the new black.

  3. I made the same argument before a commission of the Indiana Supreme Court and then to the fedeal district and federal appellate courts. Fell flat. So very glad to read that some judges still beleive that evidentiary foundations matter.

  4. KUDOS to the Indiana Supreme Court for realizing that some bureacracies need to go to the stake. Recall what RWR said: "No government ever voluntarily reduces itself in size. Government programs, once launched, never disappear. Actually, a government bureau is the nearest thing to eternal life we'll ever see on this earth!" NOW ... what next to this rare and inspiring chopping block? Well, the Commission on Gender and Race (but not religion!?!) is way overdue. And some other Board's could be cut with a positive for State and the reputation of the Indiana judiciary.

  5. During a visit where an informant with police wears audio and video, does the video necessary have to show hand to hand transaction of money and narcotics?

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